Tokyo rubber futures slumped to a three-month low on Wednesday, dragged down by falling energy prices, and nervous about a move by US transportation officials to recall Chinese-made light truck tyres.
Market sentiment was mixed about the impact of news that US transportation officials on Tuesday formally insisted a New Jersey importer recall up to 450,000 Chinese-made tires.
Nicole Nason, the National Highway Traffic Safety Administration administrator, said in an interview the agency is trying to locate tires made by Hangzhou Zhongce Rubber Co for tests and will ask the manufacturer for information.
Some traders said nearby rubber prices would rise if the Chinese tires were actually recalled but others said this could lead to depressed demand and pressure prices in the long run.
"It's too early to tell, but this can have a negative effect and depress demand in the future," said a trader at Thailand's Hat Yai rubber centre. "We've seen that past recalls have always resulted to price falls," he said.
Rubber prices had not reacted to news of the recall but prices were dragged down by fund selling in Tokyo, triggered by weakness in other commodities such as metals and oil prices. As of 0348 GMT, the key December Tokyo Commodity Exchange rubber contract was trading at 260.2 yen a kg, down 4.3 yen or 1.6 percent from Tuesday's close. It earlier dropped as far as 259.5 yen - the lowest since March 16.
"It's possible that the actual recall could trigger some buying in the near-end of the market," said a trader at a Japanese trading house. "But I think 450,000 light truck tires would be equivalent to some 2,000 tonnes of rubber, which is small. Even if they were actually recalled the impact to the market will be limited, but we have see whether this move would lead to more recalls."
Traders said the market paid closer attention to the supply situation in Thailand amid speculation that tapping in the country had been delayed by heavy rain.
"We should be seeing more supplies from Thailand, but I'm worried that shipments are a bit slow," the Japanese trader said. Supply concerns had increased earlier in the week after a fire at a rubber plant in Thailand on Saturday.
Yet many traders focused on bearish technicals in TOCOM rubber, with the benchmark contract, slumping well-below the seven-day moving average of 265.5 yen and the 14-day average of 267.0 yen.
The key contract's next major support would be the 200-day moving average of 253.9 yen. "I think this recall news is negative for the industry and also for prices, while charts also look very poor," said Shuji Sugata, manager Mitsubishi Corp Futures and Securities Ltd.
"A failure to keep the 250-260 yen could hurt technicals even further to trigger more sales," Sugata said. Falls in gold and energy prices also weighed on rubber. On Tuesday, gold fell to its lowest in more than three months and silver hit a five-month trough as softer oil prices and weakness in other metals triggered technical selling.
US crude oil futures ended 2 percent lower on Tuesday, amid expectations that weekly government data due on Wednesday morning would show supplies and refinery usage rose last week.